Standardization: What does ISO 20022 mean?

13 / 08 / 2013

The European payments area will be standardized; from February 1st 2014 on this will be known as SEPA. From this date on the current paying methods in 33 countries are not operational anymore.

Man with a pen signing the doc on What does ISO 20022 mean

The European payments area will be standardized; from February 1st 2014 on this will be known as SEPA. From this date on the current paying methods in 33 countries are not operational anymore. This means that the participating countries have a lot of catching up to do in transforming the current structures into SEPA structures; every country has its own payment structures and rules. That’s why the new file sharing standards will be based on ISO 20022 XML. This term is frequently used in the media, but what does it exactly mean?

To make SEPA happen, the European banking sector will work closely with the European Payments Council (EPC) on a technical level. This is the decision-making and coordinating institution of the European banks in the European payments area. The EPC decided that SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) put the ISO 20022 format in place. These specific regulations, processing agreements and standards of SCT and SDD are fixed in SEPA rulebooks (check this blog post about rulebooks) and Implementation Guidelines.

Pain, camt and pacs

SEPA implementation is based on the new pain (Payment Initiation), camt (Cash Management) and pacs (Payments Clearing & Settlement) standards, which are derived from the ISO 20022 XML standard. ISO 20022 is the standard for the bulk delivery for payments and collection used by business users. The pain and camt formats are optional, the pacs formats are required in the interbank messaging exchange.

SEPA and ISO standards can be compared with the European railway traffic. The standards can be seen as the rails that are being built in the same way in every country. For this reason trains from every country (payments) are able to use the rails (standards).



The term ISO 20022 can be cut into two pieces. ISO stands for ‘International Organization for Standardization’ and is derived from the Greek word ‘isos’ which means ‘equal’. The standard is the same for the entire payments area after all. The number 20022 is a unique digit that stands for this certain version of the standard. ISO 20022 not only defines the traditional payment instruction, but also reporting, invoice information and status.

The ISO standard can also be used for other financial traffic (e.g. e-invoicing) and that makes the ISO standard the most complete standard of all financial standards. It is possible to attach various complex data (elements in a certain order) to the ISO 20022 standard. This means that quite complex data files can be developed. By executing the standard in a certain language, it is easy to use.

XML as markup language

The markup language that is being used for ISO 20022 is XML, which is an abbreviation of Extensible Markup Language. XML is a set of rules used by the computer for making up and structuring documents. By doing this, the information becomes readable for computers and end users. It is important that all parties use the same XML version while sharing files. SEPA makes it possible for SCT and SDD to be processed following this layout. Banks and institutions can communicate in an easy way.

The standardization of these payments types brings several benefits. One of the advantages of XML is that there is no clear-cut definition, which means that the ISO 20022 standard can be expanded or changed in the future, so new developments can be supported.


Another advantage of ISO 20022 is the improved ‘straight through processing’, the automatic processing of the instruction without any human invention. As communication throughout the chain is being done in the same language, the processing time shortens and reduces the number of errors. This means a lot of benefits for all parties involved. By using XML the file sharing can be read by end users, which makes it easier to detect and solve flaws. Because almost all large banks and Equens are using this standard, the number of paying formats can be reduced heavily, which leads to savings on the maintenance of these formats. Another advantage is that due to the uniform payment standard, changing banks becomes easy. Banks also have far less paper work to do when onboard a new customer, streamlining the process for customers as well.

The EPC explains another benefit of the standardization in one of their newsletters: “Migration to a single set of SEPA payment schemes would allow multiple payment service providers to offer a broad range of diversified payment services and products for euro credit transfers and euro direct debits SEPA-wide. As a result, customers would benefit from increased competition and more choices in the payments market. Standardization at the schema level is the very precondition for increased competition and diversity of PSPs at the services and product level.” This is exactly what SEPA is all about.

More information about ISO 20022 can be found via Technical information is displayed in this whitepaper ‘A simple guide to a complex subject from Volanté on In the e-book ‘ISO 20022 for Dummies’ some other examples of the standardization are written.